Home Equity Line of Credit Information
The home equity line of credit is a device used by homeowners who
want to borrow against the equity in their home. There are several different
types of home equity lines of credit. These differences are frequently based on
the interest rate charged the homeowner.
Sometimes a home equity line of credit will have variable interest
rates. With variable interest rates, the homeowner cannot know for sure from
month to month what the interest payment will be. The interest rate on the loan
will vary to the same degree as the interest rate set by the Federal Reserve
Board.
In some cases the home equity line of credit offers a low
introductory interest rate. These rates sound attractive, but they hide the
fact that the homeowner will later be asked to pay a considerably higher rate.
The homeowner needs to read the loan materials carefully in order to learn
exactly what the payments could be at a much later date.
Other differences in the home equity line of credit often concern
the costs of the application process. Some offers of a home equity line of
credit come with a large one-time fee. Other offers for a home equity line of
credit might avoid mention of such a fee but then add continuing costs. It is
also possible that a home equity line of credit could tack on a balloon
payment. This is a sizable payment that is demanded from the homeowner once the
period of the offer of credit has ended. Alternate offers for a home equity
line of credit could avoid requesting a high balloon payment but instead
request much higher monthly payments.
If the differences in the
various types of home equity lines of credit confuse the homeowner, then it may
be better to consider alternatives to the home equity line of credit. The homeowner
who does not want to get a home equity line of credit can either takeout a
second mortgage or borrow from credit lines that do not use the home as
collateral.
In order to borrow from credit lines that do not use the home as
collateral the homeowner needs to seek out those who value what he has to
offer. Perhaps he owns land in a distant region where the land value is going
up. This could possibly be used as collateral on a different type of line of
credit. A small business owner who did not want to risk his home for a home
equity line of credit might need to think about using the business as
collateral.
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